March 2001

The Virtual Fairy Tale Theatre

BY KEVIN MAYER

Well, actually, that's not the end. While the story of the virtually integrated corporation is easily told, making it come true is something else. And yet the story seems to offer comfort to some people, despite the challenges the virtual model poses. What is it about the virtual model that is so attractive? Perhaps we should consider that question first, before we review the model's inherent difficulties.

THE POSSIBILITY OF COMPROMISE
The virtual model suggests a way corporations can cope with all the disruptions and uncertainties in markets characterized by rapid technological innovation, that is, in markets in which "best of breed" may quickly (and unpredictably) collapse to commodity status. Also, the virtual model suggests a way corporations may quickly acquire whatever expertise may become necessary. If a company finds that it needs to acquire new competencies to remain competitive, it needn't take the time to develop the competencies all on its own.

In a sense, the virtual corporation represents a compromise. By embracing the virtual model, the corporation may sacrifice some control, but it may also gain flexibility. Such flexibility may seem especially attractive to larger corporations that show symptoms of "old company" disease. That is, in older, larger companies, organizational boundaries may become rigid, leading to "hardening of the categories."

UNDONE BY BUREAUCRACY
This process was cited in a conversation I had with Jeff Matros, president and CEO of Tachion Networks. Matros noted how curious it was that startups such as Tachion could have stolen a march on established vendors such as Nortel and Lucent. Specifically, the startups had moved faster than the established vendors in the creation of a new generation of networking equipment capable of encompassing both circuit-switching and packet-based technologies. This new equipment is now widely recognized as the foundation of the new, converged voice/data public infrastructure.

According to Matros, the startups moved faster because they were unencumbered by organizational or structural traditions that complicated technology integration. Such traditions could lead to internal conflicts if, for example, packet-oriented and circuit-oriented staff were to vie for control of a joint project.

Matros went further, comparing the consolidation evident in today's "next-gen" space to the consolidation accomplished by Cisco early in its career. Initially, Cisco's great contribution wasn't so much the result of original science and engineering as it was the result of combining familiar, if disparate, technologies. Hence, Cisco created the first multiprotocol routers. These devices made it possible to efficiently link disparate computer networks, and anticipated the wired age.

WHEN BUYING IS BUILDING
It's fairly common to cite Cisco in discussions of the virtual corporation, but usually the emphasis is on Cisco's aggressive (and frequent) acquisitions. While acquisitions typically receive lots of attention, the real story, as Matros suggests, may be the consolidation and integration that take place behind the scenes. This point is confirmed by Cisco itself. In interviews over the years, Cisco's chief, John Chambers, has emphasized that Cisco is not only comprehensive, but also selective in its acquisitions, weighing a range of variables, including the compatibility of corporate cultures.

So, in our brief review of the virtual corporation, we've identified a couple of story elements: 1) There are times when the best-of-breed paradigm fades in significance, as essential components and protocols become available commercially. In these times, there may be opportunities for consolidation and technological integration. 2) When the times favor consolidation and integration, corporate organization and structure and culture may prove advantageous, or not, depending on whether the company's attributes promote rigidity or flexibility in terms of crossing departmental lines.

Perhaps we've put too much emphasis on internal machinations (office politics) and external maneuverings (mergers and acquisitions). There is yet another way corporations entertaining the virtual model may cope with unstable markets, and flexibly. There is, of course, the ASP option.

ANOTHER DIMENSION OF FLEXIBILITY
The key benefit of the ASP model is, in a word, flexibility. For example, an ASP (application service provider) removes the necessity of building an in-house infrastructure to support demanding applications. The ASP leverages networking technology to transform such applications into a relatively inexpensive shared resource.

However, the ASP model can encompass human resources as well as infrastructure. Early examples are already available, if we look to specialists in the management of customer interactions.

While ordinarily hosted applications imply that the corporation or subscriber should supply the human resources necessary to interact with the applications, hosted applications in the customer interaction space are relatively free of this limitation -- at least if the ASP is one of the rising number of hybrid organizations that combine hosted applications with service bureau expertise.

The new ASP/service bureau hybrid not only handles the technical infrastructure, but it also handles staffing, providing its own customer interaction agents, lessening the human resources burden imposed by a customer interaction campaign. For example, the ASP/service bureau may share call loads with in-house customer interaction agents.

The ASP/service bureau option suggests a way to cope when today's hot technologies fade to commodity status, to be succeeded by yet hotter (and truly best of breed) technologies. In the case of customer interactions, multichannel communications infrastructure may be seen as less of a competitive differentiator, and more of a baseline competency. Eventually, this front-end emphasis on CRM may encompass back-end functions such as data mining and knowledge management. Typically, these back-end functions resist shrink-wrap treatment, and may, for many corporations, remain out of reach by all means except the hosted option.

The point is, as technology adoption proceeds apace, the expertise required of a corporation is additive. The corporation must absorb successive waves of technological improvement, and always be alert to opportunities to exploit the next wave. A severe challenge, to be sure. But the ASP option may ease the continual transitions imposed by technology improvements and, more important, competition. The bottom line: the ASP option may enhance the corporation's chances for survival, particularly when combined with the flexibility offered by the service bureau, that is, the service bureau's capacity to share work in creative, flexible ways.

ASCENDING THE LEARNING CURVE
Corporations have to keep on adding new technologies and new functions, which can be difficult enough, even if you don't consider how disruptive it can be to climb a learning curve that happens to be shaped more like a staircase. That is, each new technology or function is like another step to climb. Well, it's possible that relying on an ASP can smooth out some of the disruptive discontinuities -- or, in other words, create less of a staircase and more of a smooth slope.

Thus, an ASP can be helpful even to those corporations that prefer to build and maintain their own infrastructure. (The steps already climbed are eventually taken over by the corporation itself, while the steps ahead may be handled -- initially, at least -- by the ASP.) Since there will presumably always be new heights to scale, there will always be a potential role for an ASP, even among corporations with a do-it-yourself (or own-it-yourself) attitude. 

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